Question:

MONOPOLY GRAPH HELP!... Very confusing.?

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Please help .. I am very confused with this.. Below is the image of graph.

http://img504.imageshack.us/img504/4706/graphtn0.jpg

A ) The profit maximizing price this monopolist will charge is $ ____ ( I thought it was $5 , but its wrong)

B) The total revenue (TR) this monopolist will receive when it maximizes its profit is $ _______

C) The average total cost (ATC) this monopolist will expereince when it maximizes its profit is $ _______

D) The total cost (TC) this monopolist will expereince when it maximizes its profit is $ ______

E) This monopolist earns $________profit (numeric and sign) when it maximizes its profit.

F) This monopolist earns $________profit per unit (numeric and sign) when it maximizes its profit.

I am making it clear for you before you start your nasty comments ( this is for only some users ).. I need help, Why? because i dont understand this.. and i have to perform this soon on my own.

Pls be kind.. Juri-EU & othr users, pls help

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2 ANSWERS


  1. Answering the question hinges on finding the quantity that maximizes profit and then matching that quantity to the proper curve.

    A) profit is maximized at the quantity where MR=MC.  You then take that quantity and follow it up to the demand curve for the profit maximizing price.  My guess is you used the MR curve to get $5.  

    B) total revenue is price times quantity.

    C) take the quantity level and follow it up to the ATC curve.

    D) total cost is ATC times quantity.

    E) profit is revenue minus total cost

    F)  profit per unit is profit divided by quantity.

    Now that I've explained the work here are the answers.

    A) $15

    B) $15*40 = $600

    C) $17

    D) $17*40 = $780

    E) -$180

    F) -$4.50

    ***********************

    Whoops!  goofed on my math at D.  Jurij's answers are correct.  Nice catch.


  2. A) $15

    B) 40*15=$600

    C) ATC=17

    D) TC=ATC*Q=17*40=$680

    E) TR-TC=600-680=$ - 80 (Loss)

    F) -80/40=$ - 2 (Loss per unit)

    P.S. Monopolist (without price discrimination) will operate in short-run and will close in long-run if prices and costs will remain the same. For price discrimination monopolist may continue operations in the long-run (though depends on degree of discrimination).

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